Foreign loan commitment and disbursement to Bangladesh have seen an upward trend in the first seven months of the current fiscal year, according to the Economic Relations Division (ERD) data.

At the same time, the burden of foreign loan repayment has also increased.

According to the ERD report published today (25 February), development aid commitments surged by 306.1% in the first 7 months of the fiscal year, with disbursements rising by 3.26%. Concurrently, the government’s debt repayment amount saw a significant increase of 44.52%.

Development partners pledged $7.17 billion in new commitments during the first 7 months of the fiscal year, marking a notable increase from the $1.76 billion committed during the same period in the previous fiscal year.

ERD officials said the preparations for the various processes required to secure loans have been commendable. 

This success can be attributed to the early initiation of loan agreements with development partners for numerous projects since the commencement of the financial year. In contrast, inadequate preparation in the previous financial year had resulted in the delayed contracting of several projects, they said.

According to ERD data, most of the commitments came from the Asian Development Bank (ADB), World Bank, and Japan – three key development cooperation organisations. These entities collectively pledged $6.05 billion.

The highest commitment received in the first 7 months of the current financial year was from ADB, totalling $2.62 billion. Additionally, commitments of $2.02 billion from Japan and $1.41 billion from the World Bank were secured during this period.

During the July-January period of the fiscal year, the development aid agencies disbursed a total of $4.39 billion, which was $4.25 billion in the previous fiscal year. 

Meanwhile, in the backdrop of the global scenario, market-based loan interest rates have risen, intensifying the strain on foreign debt repayment.

According to ERD data, the government disbursed $1.85 billion in interest and principal payments to development partners during the July-January period of the fiscal year, which was $1.28 billion in the corresponding period of the previous fiscal year.

As per ERD data, interest payments alone surged by 107.9% in the first 7 months of the fiscal year. In the current financial year until January, $760.74 million has been disbursed for interest.

At the same time, the government repaid $1.09 billion in principal on various loans.

ERD officials mentioned that the Secured Overnight Financing Rate (SOFR) has surged due to the conflict between Ukraine and Russia, exceeding 5%. Before Russia-Ukraine war scenario, it was less than 1%. 

At the same time, Bangladesh’s market-based loans are on a gradual rise, leading to increased interest payments for the country.

Approximately 75% of Bangladesh’s loans from the Asian Development Bank are market-based. Additionally, the country secures loans from the Asian Infrastructure Investment Bank (AIIB) at market-based interest rates. 

Furthermore, Bangladesh also acquires market-based loans on a limited scale from the World Bank.

According to ERD data, if the current international interest rates persist, Bangladesh is projected to pay $1.19 billion in interest by the end of the current fiscal year. In the previous financial year (2022-23), Bangladesh’s interest payments amounted to $944 million, significantly higher than the $469 million in the previous fiscal year.

ERD officials highlighted that the actual payment pressure will escalate alongside interest payments. The conclusion of grace periods for various market support loans and mega projects, such as Karnaphuli Tunnel and Padma Rail Link, means that the principal for these loans must now be repaid.